University of Pennsylvania: Blockchain's Biggest Challenge is Security
It is important for startups or any entity attempting to utilize blockchain technology to ask themselves if it is a database technology it is seeking for or really an immutable blockchain platform.
The Blockchain hype isn’t over yet say analysts at the University of Pennsylvania. If developers and companies successfully overcome regulatory and security-related hurdles in the upcoming months, the university says it is likely to see the implementation and commercialization of Blockchain in 2017.
Banks, financial institutions and leading multi-bln dollar corporations are struggling to deal with various conflicts in the implementation phase of Blockchain stemming from regulatory and security issues.
In order to stay on par with financial policies and money transmission regulations, it is necessary for banks or other institutions to remain in control of a network, regardless of its cryptographic or technical attributes. Because Bitcoin is decentralized in nature, banks are trying to utilize its underlying technology and remove decentralization from Bitcoin to retain control of transactions and other operations within the network.
This has always been a dead end for any major entity experimenting with Blockchain technology as they either have to build a permissioned or centralized Blockchain and compromise security or develop an immutable and decentralized Blockchain platform and decline to comply with regulations.
The traditional financial industry is a heavily regulated market. It has strict regulations and policies set in place to ensure that money is not used to fund illicit operations and any criminal activities. The failure to comply with regulations may result in blns of dollars in penalties, as seen in the recent mortgage fraud case of Deutsche Bank, in which the German company agreed to a $7.2 bln settlement.
Joe Ventura, CEO of AlphaPoint, told the University of Pennsylvania that:
“The truth is, once you give someone access to a network, many times, more often than not, they can end up very easily getting blanket access to that network. This is a huge security problem. Basically, you have to jump through so many hoops simply to pass the message from some party to another party.”
Blockchain or database?
Currently, the Blockchain industry is being funded by venture capital firms, banks, financial institutions, angel investors and large technology firms that see great potential in the technology. However, Blockchain is still in its early stage and it is important for startups or any entity attempting to utilize Blockchain technology to ask themselves if it is the database technology they are seeking or really an immutable Blockchain platform.
Tyler Mulvihill, director of ConsenSys, told the university:
“Is it a Blockchain use case or is it a database use case? If you are a company that has a lot of information internally and you don’t transact like a lot of vendors, and not a lot of people need to use your information or do business with you, a database can be fine for a lot of things.”